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tv   Northwest vs. Ginsberg Oral Argument  CSPAN  April 5, 2014 7:00pm-8:01pm EDT

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>> we hear argument first this morning in case 12462, northwest incorporated versus rabbi ginsberg. mr. clement? >> mr. chief justice, may it please the court. under this court's decision there are only two relevant questions and the ninth circuit got both of them wrong. first question is whether a claim for additional benefits under a frequent flyer program like price upgrades relate to price and routes and services. this court answered that question and agreed that it was not particularly close. to reach the same conclusion in the same context underscores how far they've strayed from this court's precedence. affirmatived indeed, underscored the question was not particularly close. the ninth circuit's ability to reach the contrary conclusion in the precise same context underscores how far they have strayed from this court's precedence. the second question is whether the plaintiff's claims here seek merely to enforce the party's voluntary undertakings or rather seek to enforce state law to
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enlarge those undertakings and underlarge the party's bargain and it's the response to the claims that make the case quite clear. respondent did bring a claim here to enforce the party's undertaking, a breach of conflict claim. the implied preemption claim is different. it seeks to impose a duty of fair dealing and superimpose it ogthe bargain even when parties to the contract have essentially given one party absolute discretion. >> the argument was made that if the airline has an unreviewable right to terminate this agreement for any reason or for no reason, if that is so, then it's an illusory contract. what is your answer to that? if one party can get out willy-nilly, what kind of
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bargain is it? >> there are a couple answers to that. the first is, i think although the focus on whether a contract is illusory is sometimes used as part of the analysis under the implied covenant for a bilateral kraekt. i don't think it would apply to something like a frequent flier program which i think would be understood as a unilateral contract where you don't worry about the illusory promises. the second thing is i think you have to understand -- >> i'm not sure i understand that point. >> there is a distinction if you go back to the contract law between a unilateral contract and a bilateral contract. a unilateral contract is a typical sort of outstanding promise that promise doesn't require an exchange of consideration, and the party who makes the promise has to ability to withdraw the promise until there's performance essentially relying on the promise. and that's why i think it's actually a little bit of a mistake to apply that doctrine to something like a frequent flier program. >> i don't understand that because i always thought the way
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these agreements worked were there were agreements if i flew a certain number of miles on your plane, i was going to get a free ticket. and it wasn't a gift that i was getting a free ticket. it was because i did something. i flew a certain number of miles so there was an exchange with value on both sides. >> well, i suppose you could conceive of it that way. you could also conceive of it as basically being a premium that's offered by the company to reward your loyalty. but you have already gotten -- >> i think you have to conceive of it that way, but it still makes it a unilateral contract. it's not a promise in exchange for another promise. it's a promise in exchange for the performance of an act. that is flying the airline, you know, a saerp number of miles. you're correct, it is a unilateral contract. whether that means that there's -- is there no such thing as an illusory unilateral contract? >> i don't think there really is. looked at the treatises for
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that, and i don't think that concept applies in the unilateral contract -- >> i don't see why that would make sense. because if i knew it was really up to you to give me the free ticket, maybe i was going to get it and maybe i wasn't, i don't think i would be spending all this time in the air on your planes. you know, i would find another company that actually gave me the free ticket. >> and that really, i think, gets to the nub of this, because of course what you're suggesting is there would be a market solution to this problem. that's what the airline deregulation act is all about, letting the market decide these issues. so some airline really were crazy enough to systematically turn on its most lucrative and loyal customers. surely the market would solve that, and of course, if a bunch of airlines did it, the department of transportation stands ready to police that -- >> but what we say when a contract has no consideration, we don't say, oh, we're going to hold you to it anyway because the market will solve it. we say the contract has no consideration. it's illusory in just the way
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that justice ginsburg pointed out. the question is if there's really no obligation on the part of the airline here to give that free ticket, if they can do it when they feel like it or not do it when they don't feel like it, why is there any consideration? why isn't the contract illusory? >> there is consideration because this is not something where the airline says we can do anything we want. they say, look, if you present us with miles while you're still in good standing in the program, we'll give you upgrades. we'll let you into a lounge, but if pursuant to the contract you abuse the program in our sole discretion, then you lose your membership status. that's what's happened here. >> you're not trying to enforce the contract, anyway. you want to get out of the contract. so you ought to be happy to have it pronounced an illusory contract, right? what do you care? >> that is true, but i suppose the aurnlt might be that you could, as a matter of breach of contract law, use this principle to interpret the contract. if that were an argument, it's
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an argument that was made in count one of the complaint -- >> you're making an assumption. the claim here is not whether he abused or didn't abuse the program. his allegation is that the only reason you terminated the contract was because you wanted to get rid of these high fliers in your merger negotiations with the other airline. that's the same as saying they didn't terminate me because i abused the program. they terminated me because i was of a certain race or i was woman or i was handicapped or some other inproper consideration. so are you suggesting that this contract permits you to use that kind of self -- that kind of grounds? one not grounded in the contract but grounded in your wims and caprice? >> a couple of points, justice sotomayor. first of all, it's really important to emphasize that the claim about free tax and this
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all being about the merger is not something made in the breach of contract count. that's in the misrepresentation count, counts three and four of the complaint, that everybody recognizes are preempted. in count one, the breach of contract count, is under the contract somehow, we don't have the ability to terminate somebody without just cause. and that's the argument that the district court rejected on the merits. now, the implied covenant, count two, is different. it says that under state law, there is a duty of good faith and fair dealings. and that duty is superimposed on the contract, even if the contract gives one of the parties absolute discretion. and those aren't my words. those are the words of count two of the complaint, joint appendix -- >> even if you have absolute discretion, isn't there a limit to that? isn't there a limit of reasonableness to that absolute discretion? that's the whole question. otherwise, you have a contract
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with no substance. >> the way i would think about it, justice, is absolute might not quite mean absolute. and the place to make that argument is under the breach of contract. you could cite bordozo, but when you get to saying even if the contract is absolute, state law still superimposes a reasonable contract, that's at which point preemption kicks in. >> exclusive contract said in its absolute discretion and subject to no obligation of good faith, suppose it said that, would state law still impose an obligation of good faith? >> it might well, justice scalia. >> it might well or it would? >> it depends on the state, so the majority -- >> this state r the state we're talking about. >> okay, minnesota. as i read the cases, the rule in minnesota is that the covenant of good faith and fair dealing is not waived. so there's a case that we found called new amsterdam indemnity,
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and it says in the context, a covenant of good faith and fair dealing is not waivable. so i don't think you could do that. which i think underscores that this is not the part ies agreeig to this. this is having this condition superimposed on them. >> is the choice we have here only between state law and no relief? or is there some theory under which, either federal common law or an appeal to the d.o.t., could give the flier, the customer, some relief? you know, we can all think of crazy hypotheticals, suppose the phone rings and says i'm john dough. i want to talk to you about my airline. you have miscalculated. they said we have heard from you 15 times. you're out of this program. it's a mistaken identity. there are two john does. could the innocent good faith john doe do anything at all? >> yes, the good faith john doe could do two things.
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one, as your question suggested, he could go to the d.o.t. they have the authority to investigate complaints about frequent flier programs. it exercises the authority, it's discussed in pages 20 and 21. they heard something like 289 of these complaints last year. so that's one place you can go. the other place to go in a case of mistaken identity, i mean, if you followed up and certainly if you went so far as to bring a routine breach of contract claim, i assume that would get addressed in that forum. because airlines are not in the interest -- do not have an interest in getting rid of their most lucrative and loyal customers mistakenly. >> part of that suit, wouldn't you have -- the judge would say what is the underlined substance? you say there's a duty of good faith dealing under minnesota law, and you're right back where you started unless there's some federal common law or something like that. >> no, i don't think there's common law. i think the court objected that. i'm making a more practical point in a real case of mistaken
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identity, i think that would get sorted out in the process where a breach of contract action is brought. again, if there's a john doe who really is -- >> i still don't understand the substantive basis for the breach of contract suit if you say we can't refer to state law. >> you can refer to state law for breach of contract. you can't -- we would submit, add the implied covenant of good faith because that in large is the argument. >> suppose that this complaint only had one count, and suppose that they had said, look, we have this contract, and it gives very substantial discretion. you know, by the words alone, it gives absolute discretion to northwest, but that can't really be right, because contracts have this implied cov gnt of good faith, an implied duty to perform in good faith, and that means this discretion is narrowed in certain kinds of ways, that they can't terminate my membership for certain kinds of reasons. that's all that the complaint
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says, just that one count. do you think that would be preempted? >> the reliance on the implied covenant in that context should be pre-e..ed. if they said it's at the point where you try to bring a separate claim that's preempted it, it might make sense, because, you do have to take a practical look at this. in the wake of woolens, if you plead a breach of contact, you're going to plead pemtion. >> i guess what i'm suggesting is the implied covenant, it's an interpreted pool. it says there are certain kinds of provisions that are written very broadly or very vaguely and an implied covenant comes in to help us interpret those provisions. viewed in that way, it's just a contractual device in light of woolens ought to be permitted. >> here's my thought on that,
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which is even the respondents admit in some states, the implied covenant is more than a rule obstruction for the explicit terms of the contract. i suppose if this court wants to say that the only way the implied covenant is not pre-e..ed is we could live with that rule and win in this case. the reason i would suggest the better rule for this court to adopt is that the implied covenant should be preempted even in that circumstance is because in that circumstance, it doesn't add anything. if it really is just a rule of construction for the express terms of the contract, you could get in the same place with the citation to cardozo. >> counsel, could you tell me where you think they concede that some states, their position would lead to a different result in some states? >> it's in the read brief, and i think it's quite clear. i think they say -- i'll try to find the point where i find this
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rebuttal, but i don't think they do this. they basically say that some states do apply this rule. they say that our claim is different. and i'll get you the exact -- >> i thought they were saying in some states it's not an implied term of the contract, but a different sort of provision. >> i may have misspoke. what i meant is i think both parties agree in some states the implied covenant doctrine is used to directly impose public policy, and so in alaska, that seems to be the case. in montana, that seems to be the case. >> how about minnesota? minnesota, is it a rule of construction? >> we don't believe so, your honor. i'm not going to try to tell you that minnesota law is collusively clear on this, but minnesota, the minnesota supreme court case that adopts -- recognizes the implied covenant cites the restatement. the restatement quite clearly embraces a view of the implied covenant that goes beyond the
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express terms of the contract. >> i still have this problem. now, don't worry, you can always bring an express contract action. i say what law do you apply? well, you have no state law and there's no federal common law. i don't understand how you can bring an action with no substantive law to apply it. >> i may have misspoke, justice kennedy. the breach of contract claim you bring is a state law claim. so we don't have any quarrel with count one of this claim, which views minnesota state contract law to interpret the express laws of the contract. where we have a beef is with count two of the complaint that says even if the contract gives the parties absolute discretion, we're going to superimpose a duty of good faith and fair dealing. and complete the answer, since minnesota has adopted the restatement, the restatement suggests the way you find good faith is you exclude the possibility of bad faith based on community standards of fairness and decency.
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and at the point you're applying communitydecency, it seems to m quite clear you're not applying the party's self-imposed undertakings but something else. >> i suppose you could say it is assumed that parties to a contract comport with community standards of fairness and decency. you know. you can wiggle to there if you want. >> you could try to wiggle there. my point would be the point of wiggling there is the express terms of the contract. i think if you take a step back and think about this context, when an airline reserves to itself the sole discretion about frequent fliers or taking unruly passengers off the plane, do you want state courts judging that or is that something that should be judged by a complaint to the department of transportation, if i could reserve the remainder of my time. >> thank you, counsel.
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>> thank you, mr. chief justice. may it please the court. in wulens, this court recognizes that congress enacted the ada to leave decisions concerning airline prices, routes, and services to the business judgment of air carriers subject to market forces and limited oversight by the department of transportation. in light of that statutory purpose, they held that claims based on the state common law of contract are not preempted by the ada to the extent they seek to enforce the voluntary undertakings of the parties. >> what if you had a decision by the minnesota supreme court on common law contract principles and it said when the parties use the word sole in a contract, we interpret that to mean subject to reasonableness constraint? parties here use sole. would the application of that principle violate -- would that be preempted or not? >> in that context, i think not. it depends on what the court --
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by the term reasonable, if the term reasonable incorporates external standards such as -- >> reasonable means -- you know, the airline says sole means sole. we don't have to explain why we did it. and the minnesota court said no. when you say sole, it has to be reasonable. it can't be, for example, for no reason. it has to be for some articulated reason. >> i understand, chief justice, thank you. but i think reasonable can have different focuses. it could be reasonable in light of the expectations of the parties at the time they formed the contract or it could be reasonable in light of community standards of decency, which are -- >> let's say going forward, going forward, the parties know that this decision is out there, and they say sole. so it means they're using the term subject to the gloss that's been put on it by the minnesota state court. what about in that case? >> subsequent, if there was a gloss, and i think that would be a question of what the parties intended with the contract, and i think there may well be an argument under that scenario
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that the airline understood that the gloss was going to be given -- >> we would assume then that the parties knew whenever they used the word sole, they meant subject to reasonableness as interpreted by the minnesota state court. >> an argument like that can prove too much. an argument like that could suggest as respondent argued in the lower court that any time a party enters into a contract, the party indorses or at least accepts all normative principles of contract law that would include things like doctrines of unconscionability and other doctrines that impose limitations. >> so you're not going to give me reasonable for anything? >> i absolutely am going to give you reasonable. >> if you're going to give me reasonable, in other words, the pa party's terms say not reasonable, but they take the
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contractual interpretation that the minnesota supreme court has adopted, i don't know why the same rule wouldn't apply when the minnesota supreme court says there is an implied condition of reasonableness across the board. and that the parties contract against that background just like they do when there's a specific interpretation of the word sole. >> i think the problem, chief justice, is that the notion of the doctrine of the implied covenant is extraordinarily broad and encompasses a number of concepts. of reasonableness and implying discretionary grants of authority. it also encompasses in some states concepts such as notions of fairness or -- which extend beyond the intent of the parties. >> let me change the hypothetical slightly. suppose the contract says one of the parties reserves sole discretion to do something, and then the contract goes on to say, and then in exercising this
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discretion, we don't promise to act in a reasonable manner, but the state court says that nevertheless, that has to be interpreted to mean that the party can only perform in a reasonable manner, then what would the situation be? >> the ada would preempt exactly that sort of claim or a claim based on that sort of argument. the crux of the ada is to leave to the judgment of air carrier subject to market forces decisions concerning rates, routes, or services. and i would like to underscore this point by pointing out that the interpretation that this court gives to the ada is not only going to control frequent flier programs. it's also going to control things like contracts of kae carriage -- >> the question i have, which is for anyone who wants to answer it, particularly the government. i absolutely agree with you that a free market in price is at the heart of the deregulation act, given. i also think frequent flier
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programs are simply price discounts, given. i also think that if you don't have contracts, you can't have free markets, given. but i also think the state cannot under the guise of contract law regulate the prices of airlines. if you allow that, you have worse than we ever had. it will be 50 different systems. so if i think those four things, what standard do i use to separate when a state is and when it is not using its contract law to regulate prices? >> justice breyer, i heartily -- >> give me the answer. what i'm missing is the standard. >> i think the standard that this court could adopt and make very clear is that any contract doctrine which seeks to interpret the intent of the parties at the time of the contract's formation is a valid standard to be applied in any suit and is not preempted by the ada, but any contract doctrine
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like unkaungsability and some states, which seek to impose extra contractual terms like community standards -- >> you said in some states. what about the states where that doesn't -- are you saying in some states, the implied covenant is assumed to be what the parties agreed upon and some states it's not? >> i think there's a continuum. the notion of the implied covenant as justice scalia explain eed before the d.c. circuit in the time share decision is a label that encompasses many meanings. some states like illinois and connecticut use the doctrine purely, it appears to us, as an interpretive device to discern the intent of the parties. other states at the other end of the spectrum, arizona is one, we cited a number of other cases in our brief, use the same concept
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to encompass extra contractual -- >> i don't want to have to sort it out state by state. i mean, it seems to me the -- the regime proposed by the petitioner is much more manageable. if it goes beyond the words of the contract, and you're reading into it something that it doesn't say, it's a matter of state policy. i can work with that, but you're asking me to go through each of the 50 states. one by one, to decide, oh, which of these are really trying to disearn the intent of the parties and which are not? since you discern the intent of the parties by saying parties intend to apply community standards, right? and there will be different community standards in every state, presumably? some states are more honest than others, right? >> justice scalia, i have two responses to that observation. the first is, i don't think the
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state by state analysis is either unusual or difficult. there has to be a state by state analysis any time you have a contract claim applying state law. there are variances among states in their contract law. the second part of the same response is, i don't think the standard that we're articulating is a particularly -- >> there are variances but not variances in such an inefficable question as to whether this is really an effort to discern the real intent of the parties or rather whether it's an intent to impose community standards, especially since, as i say, parties intend to adopt community standards usually. >> with respect, justice scalia, i think that's not at all a difficult question. i think it's unlikely that a frequent flier contract or any airline contract that reserves discretion is likely to have incorporated implicitly community standards. i think the point would be if a carrier were to decide to
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incorporate inefficable standards such as that, it would have been clear in the reservations -- >> well, easy for you representing the government, but suppose you were representing the airlines. would you come up here and say, the airlines want to be well known that we don't have to be reasonable? i find that very difficult to understand. >> i have one principle response, justice kennedy, which is this. if the court were to adopt a prophylactic rule along the lines the petitioner was suggesting, we think that would be better than an alternative prophylactic rule in the other direction because it would cut off the use of the implied covenant doctrine that would impose extra contract -- >> it seems pretty inconsistent with the normal assumption against preemption we apply. you say we're going to apply a broad prophylactic rule. >> this is in part precisely why we propose the court adopt a
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standard which we don't think -- >> so let's go back to a simpler standard. >> go ahead. >> my simpler standard comes from quoting kennedy. does the implied covenant claim extend to actions beyond the scope of the underlying contract, or can it override the express terms of an agreement? if the answer is no, it's not preempted. is that an okay statement? >> that's an okay statement. >> so if that's what minnesota law says, it's okay and not preempted? >> with the following caveat, justice sotomayor. in some states that have adopted the implied covenant, they have hybrid approaches where they not only look to the intent of the parties but also impose external standards. >> thank you, counsel. mr. rosenbaum.
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>> mr. chief justice and may it please the court, northwest claims that the world perks contract allow to terminate rabbi ginsberg's contract and take away the miles he had accrued in reliance on the frequent flier contract. that allowed it for any reason or any whim to deprive him of all the benefits of the frequent flier contract bargain. our position in contrast is that northwest's actions breached its obligations under the contract, specifically the contractual obligation to perform in good faith. because this is a question of contract interpretation, rabbi ginsberg's claim -- >> a lack of good faith is what you're claiming. if they thought he was abusive, or what are you saying? what action? >> the action was terminating him from the program and taking away his miles. >> it can't be that. >> without having due cause. >> what are you saying was the bad cause here? assume their answer, that he was
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abusing the program. >> well, we do not think he was abusing the program. in -- >> so you're doing exactly what he's saying. you are saying that their judgment of abuse is not enough? >> we think that there are some reasons that he could not be terminated from the program for, and there are allegations in the complaint that are incorporated into the covenant of good faith claim in the complaint that he was terminated because of the merger between delta and northwest. >> as i understand your argument, correct me if i'm wrong, he could be terminated without reasonable cause if he happened to be from a state or if the suit was brought under the governing law of a state which imposed this obligation of good faith as a matter of law.
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the state says, regardless of what the contract says, even if it says in its full discretion without any obligation of good faith, even if it says that, as a matter of law, there is an obligation of good faith. as i understand your case, you acknowledge that in that state, he would simply be out of luck. >> i don't think so. well, that he would be out of luck -- >> he would have no cause of action because this is obviously not an interpretation of the contract. it is an imposition of a state requirement. >> we agree that if it's not construing the contract, that if -- >> okay. >> if the state were instead claiming that the contract violated the law instead of that -- >> so the prospect, well, somebody has really been given a raw deal, you know, that's still going to be possible, even if we rule for you here. it depends on what state he's from, right? >> well, states tend in applying
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the covenant of good faith to apply it as a contract interpretation tool, as a way of giving effect to the benefits of -- >> some do, some don't. >> the vast majority of states, and there is an appendix to the state's brief on this issue, talk about the covenant of good faith as a way of interpreting the contract. >> in minnesota or one of the states where you say the covenant is simply a way of effectuating the way of the parties, do you have a contract between two tough and nasty business men, and they write in their contract, we're going to comply with the literal terms of the contract, but we do not promise each other that we're going to proceed in good faith or that we're going to deal with each other fairly. we're going to take every advantage we can under the little terms of the contract. now, would that get rid of the covenant under minnesota law? >> generally, the covenant of good faith cannot be waived. i think the question of whether
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the principle that the covenant can't be waived is itself an external principle of law is a much harder question than the question here of whether the covenant itself -- >> but if it can't be waived, it sure seems as those it's operating independently of the party's reasonable expectations. >> i think you need to separate out the principle it can't be waived from the underlying principle of what the covenant is doing, which is giving effect to the bargain that the parties entered into based on looking at the reasonable expectations of the parties. >> in wolens, the case that we rely on that allowed the reasonable contract claims, the expression was, self-imposed undertaking. and the airline says we didn't impo impose. we didn't take on this obligation, but the law reads it
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into every contract whether we want it or not. how is it self-imposed? if the party has no say that it's going to apply anyway? >> well, the terms of the contract are the self-imposed undertaki undertaking, and this is a tool that's being used to understand and interpret the tools of the terms of the contract and then to enforce them. and this is a widely used tool to interpret terms of contracts, particularly when there are discretionary terms within a contract. that's something that's done in the vast majority of the states and in fact, the discretionary -- the cases where there are discretionary terms within a context is the quintessential application of the covenant of good faith. a lot of the early covenant of good faith claims required
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output of covenant krcontracts where the specific amount was not set and the covenant was applied to that situation. and scholars often specifically note it applies to discretionary terms. >> how do you account for the fact that in many states a covenant of good faith and fair dealing is read into most contracts but is not read into employment contracts? >> i think that's a situation that states struggle with, given the at-will employment doctrine and they view the covenant and at-will employment doctrine as being in conflict, here, they are not in conflict with each other. the covenant isn't being used to override any terms in the contract. it's being used to help give meaning to the terms in the contract and to identify what the implicit restrictions are. >> doesn't that discrepancy show simply that the state has different policies with respect to those two types of contracts? >> i don't think that it's
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applying different types of policy. i think it's interpreting the contract and what the contract means differently in different situations. >> i mean, it might be, right? because people have different expectations in those two different situations. and that the at-will employment is so pervasive and so customary and so sweeping that the policy -- the rule of an implied covenant of good faith doesn't apply there because we think everybody expects it not to apply there. >> exactly, and i think courts will sometimes say the covenant doesn't apply when what that mean is if the kvinant did apply and the court were looking at the mutual expectations of the parties based on the contract, there would be no reasonable expectation. >> the contract gives the employer sole discretion as to whether to retain an employee. and we'here we have a contract t says the airline has sole discretion to determine whether to terminate somebody from the
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frequent flier program. so what is the difference? >> it's a difference in the context and what the term sole discretion means in different context is going to vary based on the context and based on what someone entering into that contract reasonably would have expected that contract to mean based on the terms of the contract. so in the employment context, an employee, given the wide acknowledgment of the at-will employment doctrine, might not expect that they could only be terminated for cause. >> you would agree -- same question i asked the government. i would like your answer. i imagine that you would agree that a state says the following, we read into quite common law courts used to do all the time, for transportation company, we believe the price must be fair and reasonable. and the contract in our state for transportation prices has to set a fair and reasonable price, and i personally think many fares are not reasonable. they're too high.
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all right. and therefore, we have substituted the judges' and the states' for setting prices instead of parties. all right, you agree that would be preempted? now, what is your standard for distinguishing what is and is not preempted where the state uses its contract law to imply a fair and reasonable term? >> i think our standard is very similar to the one that the united states said. it's about whether the covenant is going to -- whether the claim is looking at whether the parties breached the contract or whether it's looking at whether the contract itself violated the law. so it's a question of whether the claim is actually interpreting the contract and trying to get at what the parties -- what their agreement was or whether the claim is really that the contract as the parties agreed to it violated the law. >> suppose the supreme court of the state had an opinion.
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they said we're going to be candid about this. the covenant of fair dealing, good faith, it's not in this contract. but we will read into every contract that is if the state's supreme court says it's externally imposed, this is a rule that we will read into every contract that's brought to policy in our state, that people should deal with each other fairly, suppose that was the controlling decision of the minnesota supreme court. then you're out, is that right? >> yes. if a state says that it's imposing external notions of policy that would fall on the other sides of the lines drawn in wolens which looks at enforcing the agreement as opposed to external state
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policies -- >> it's rather weird, isn't it? in such a state, there might be a contract where the parties reasonably did expect this implicit term that limits something, a very broad conferral of discretion to operate, and yet, just because this state's supreme court has framed its argument in a particular kind of way, they don't get the benefit of that. >> i think it would dependent on how the claim was framed and how the court interpreted that claim and whether in interpreting that claim, the court was looking at the reasonable expectations of the parties based on the terms of the contract and based on their desire to be bound by an enforceable contract or whether it thought it was overriding the party's contract and imposing external notions of fairness. >> that's no clearer than the government's view, and it seems to me to be a particular problem when you're talking about the objectives of the ada to say the rule varies from state to state, particularly of course since we're dealing with airlines that go to a lot of different states. it seems to me that lose the
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state from the point of view of the preemption is going to set the standard. >> i don't think that the rule itself is varying from state to state. i think that the rule would be the same across states. >> yeah, it's a general rule, but it depends upon the particular circumstances. that's the same rule, but the application varies from state to state. >> i don't think that it necessarily would because in all the states, a claim that's seeking to get at the expectations and intents of the parties would not be preempted where as one imposing external notions of fairness -- >> that isn't your complaint. i think paragraph 56, which i think is the key paragraph, says that under the law is the contract you want to enforce is even where a party to a contract is given absolute discretion, it must exercise that discretion in good faith in a manner consistent with the reasonable expectations of the other party or parties.
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now that's, i think, what they're objecting to, because there, it sounds to me like i get a ticket, my reasonable expectation is they're not going to charge me what they're going to charge, it's unbelievable. but that's my reasonable expectation, and i'm the other party. so that clause sounds as if you could under state contract law govern the price according to my ruseinable reasonable expectation as a consumer, that might be a great idea, but i don't think that's the idea behind this act. that's what i just read you. so what do you say about that? >> well, i think there's a difference between expectation, subjective expectations and reasonable expectations, and the concept of reasonable expectations in the complaint is an objective standard of what based on the contract and based on the context, what -- how the contract should be interpreted and what implicit terms there are in the contract that need to
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be interpreted and then enforced and that can in fact be breached by the other party. >> ms. rosenbaum, in our decision in this case, do you think we should apply the presumption against preemption of state law? >> i think you should apply against state law. >> but the whole purpose of the ada was to preempt state law. i can understand applying th that -- the whole purpose of the ada was to deregulate airlines, was to say there are going to be no federal regulation. let the free market handle it, and there will be no state regulation, and you want us to apply a presumption against preemption of the statute. >> i don't think it's necessary to any outcome in this case because whether or not it applies in wolens this court
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held that claims are about holding airlines to the terms of their agreement are not preem preempted. >> one thing to read the terms in the agreement. it's another thing to say it's an underlying premise of good faith and fair dealings with control. are you taking issue with the good faith and fair dealings standard being amorphous, being susceptible to different interpretations by different judges, by different juries? >> i think there is a fair amount of uniformity across the states in how they actually apply the covenant of good faith and in terms of applying it as an interpretation of the contract, and that especially in cases where one party is claiming that all of their performance under the contract is in their sole discretion and that they're free not to perform
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under the contract at all, you know, essentially, the contract would be illusory in applying the covenant specifically under those circumstances to insure that there is meaningful performance that's required under the contract. >> is the employment at will contract illusory? >> i don't believe that's an illusory contract. i think rather than it being important -- whether there are specific -- whether specifically this contract was illusory, i think the fact that one party is claiming that it had no duty to perform under the contract shows that the contract had reasonable implicit limitations in it, that the parties were reasonably expected that they were contracting to there being some kind of performance under the contract. in fact, the principles at issue here are remarkably similar to the iish principles at issue in
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wolens itself, and they recognized they were contract construction issues. >> that's because the contract was silent. here, it isn't. here, the contract says sole discretion. and wolens, the question is retroactivity, and the contract said nothing one way or the other about it. >> in wolens, it was an express reservation of rights, and the contract didn't say whether or not it applies retroactively. the question was whether there were implied expectations -- >> would this contract produce a different result if it did not contain the words in its sole discretion? >> the interpretation of the contract might be different. >> you would still apply the very same doctrine of reasonableness, right? so the words in its sole discretion become superfluous.
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>> i think there may be a larger amount of deference that's given to the airline and that a party would reasonably expect would be given to the airline because of the sole discretion language, and that's obviously a question for the merits, what exactly is the meaning of the sole discretion. >> i guess different states will treat that differently as well, right? >> i think it's state by state and case by case and context by context of what does sole discretion language mean when used -- >> i find it hard to believe that you're doing nothing but interpreting a contract when you give it the same outcome whether it says in its sole discretion or it does not say in its sole discretion. i find it hard to grasp how what you're doing in that case is simply interpreting the contract. >> i don't think there would necessarily be the same outcome in every single situation, whether or not the claim --
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whether or not the contract said sole discretion or not. there may be more deference given to the airline because of the discretionary term. but in both situations, the question would be what does this contract mean? and contracts include both their express terms and their implied terms and the covenant of good faith is going to interpret those implied terms, to identifying them within the contract and then enforcing them within the contract. if an airline were able to just insert sole discretion or sole judgment in its contract, it would be able to entirely circumvent the rule set forth in wolens just by adding sole discretion to its contract, it would never be held to any contractual duties or requirements. >> may i ask you a question about something slightly different? an ameamicus brief by californi
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and other states points out there are a lot of frequent flier programs where a lot of miles are earned by making purchases other than for flights and in which miles can also be spent for things other than flights. do we have to worry about that in this case? >> we think that that's another reason why this claim is not preempted, is because it has to do with membership in a frequent flier program rather than being -- rather than like in wolens, having to do specifically with access to flights. >> what are the facts relating to this particular plan? can you earn miles by doing things other than flying? can you spend miles on things other than flying? >> there are not many facts in the record about the plan, but the contract does refer to airline miles -- sorry, to airline partners from whom one could earn miles and then use miles also. delta has merged into -- >> the plaintiff used the
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frequent flier program whenever else it might be useful, he used it to get lower prices on flights. right? >> he did. yes. and that is something in the record. but -- >> why does it relates to prices even if you get credit for miles, from staying at certain hotels. it's still, has the effect of lowering the price for your airline ticket. and likewise, if you can use your frequent flyer miles to get cheaper hotel rooms, that effectively lowers the price of your airline ticket, doesn't it? it doesn't seem to me to make any difference whether the only thing you get from the frequent flyer mileage is, you know, is airfares, or other goodies. they're all price. >> this is a claim just about his membership in the program
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overall. and that's a membership where there -- people who have the same claim as him could be earning miles on their credit card, spending miles on hotel rooms, and once there's a claim where someone can bring it, who has no relationship with air travel whatsoever, where they can bring that exact same claim, it's hard to see how that claim is related to prices, routes or services of air travel. and there's certainly been no showing here -- >> i'm sorry you're talking about a situation where you can assign your mileage to somebody else who can get the hotel room? >> no, i was saying that -- >> the person who gets the discount for the hotel vroom the person who bought the airline ticket, right? >> or the person who used their credit card to receive frequent flyer miles. >> your point is that you can get frequent flyer miles by purchases other than airplane transportation? >> yes. and then also use them for purposes other than airline transportation. reportedly more miles are earned now on the ground than on flight
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through means other than travel than actually through -- >> -- don't see anything in the complaint about anything other than airline -- >> no he himself -- >> is there anything in your complaint that talks about anything other than airlines? >> no, there isn't. he, rabbi ginsberg himself earned and used his miles -- >> but i know. but what you're talking about is what count two of the complaint says i think that's their objection. >> mm-hmm. >> and as far as count two of the complaint says, it's about airline miles, i take it, and airline miles are used on airlines, and et cetera. >> well, his claim -- >> well there is something else in this complaint, tell me, and i'll have to figure out whether we go beyond the complaint. >> his claim is about his membership in the program itself. and the program itself can be used, including the accrued miles that are earned under the program, can be used for purposes besides airline flights. >> does it say that in the complaint? >> it does not specifically say, but the contract does refer to the airline partners. and this was decided -- >> airline partner i take it is
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another airline. >> no, i think airline partners can be the people with whom they partner with to -- to whom they sell their miles -- >> and so if i want to find that in the record where do i look? >> this was decided on a motion to dismiss so all there is is the complaint. but there is -- >> all there is is the complaint and it doesn't talk about it in the complaint. what i'm thinking about obviously is we might reserve that question for another day. >> the complaint does include the contract that does refer to the partners but does not, i don't think, define exactly who the partners are. but this court doesn't have to reach the question of whether or not the claim relates to prices, routes and services because it can decide this case based on the line drawn in wolens of whether or not this claim enforces the terms of the enforces the terms of the contract, which under minnesota law the covenant of good faith does. cases in minnesota have referred to this as a breach of contract claim.
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and i want to respond to -- >> what you say would apply to other contractual obligations of the airline, right? so if the airline says you have to get off the plane. if the flight attendant tells you to do so, there's going to be a good faith obligation attached to that. so you can challenge those decisions in court. >> the separate apply to safety under the ada, but besides that, this would apply to matters besides frequent flyer miles. it's an issue to the sole discretion of the airline. the department of transportation does have authority under unfair and deceptive practices that define airlines. that is very different than the claim that we're pursuing here. and it also looks at whether the
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practice is unfair or deceptive. our claim isn't that this was an unfair practice. the claim here is this is a practice, or these were actions that violated the contract and what's being applied here are contract law principles about interpreting the covenant of good faith. and the same thing was true also in woolens. the department of transportation had the ability to pursue claims for unfair practices. but the court recognized that did not override the need for a contract dispute regime by the state courts. and that's the same here at whether or not the issues expressed were applied. and this is a claim where if these were in it would undercut the efficiency of contracts and the competitive marketplace that overall the ada pursued. people need to be able to rely on their contracts.
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they need to rely on the fact that the other party to their contract will interpret that in good faith, according to the reasonable expectations of the parties, where they will give them the performance they reasonably thought they were securing when they entered into the contract. under northwest position here, though, that has the discretion not to conform at all. people would be able to rely on the security of their contacts, and it's hard to imagine when a
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congress enacted the airlines regulation act, it met to cut it in a big way. that's for the federal government to determine. not for different state laws. that's what they said. for people to be able to promote their contract. we think it's true whether the terms being relied on are expressed terms of contract and the contract is going to be performed in good faith. unless the court has any other questions, thank you. >> thank you, counsel. three minutes. >> thank you, mr. chief justice. first a couple of loose ends. the concession i was referring to before is on 15 and 16. also this argument that somehow frequent flyer miles programs have changed or are different
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because there are partners. the same arguments were made by the plaintiffs in their brief to this court, that somehow these don't relate to prices and services because you have rental cars and hotels as partners. so i think this court has already crossed that bridge. >> i don't want to take up all your time. but if the facts were that under a particular program 90% of the miles were earned by purchasing things other than flying, and 90% of the miles were spent on things other than flying, wouldn't that be very different? >> i'm not sure it would be different in a claim brought against the airlines. if the court wants to reserve that, i suppose it could. this is very different from other interpreted tools. it's nonwaivable. trying to determine this, nonwaivability is a huge strike against it being voluntary.
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it's also just -- you can bring in separate claims. that's routinely brought as a separate claims. it can enlarge it in very big ways. states make policy decisions about whether to have it. texas doesn't have implied covenants a general matter at all. some states have a valid public policy. they have different views about employment contracts. and on the franchise agreements between car manufactures and automobile dealers, they pass a statute. in a way that normal rules of construction are not. now if i had to state a standard that it's only not preeminent when it provides a rule of construction for the expressed terms of the contract. if that's all it does, then there's nothing to be gained by
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saying those claims are not preempted. we can still get to the same place by signing cordozo. the claims that are brought in the real world are claim ls that i get a refund, even though it's nonrefundable. i get to sue you. in the real world the applied claims are elastic and bring the claims that courts have almost uniformly recognized as preempted. why is it the airlines don't put these in as expressed covenants. sole discretion unless it denies reasonable norms of decency. well, the reason is you can't run a national, let alone international airlines if every judgment about taking an unruly passenger off is going to be second guessed by a jury on reasonable standards.
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so for that reason we think the judgment alone should be reversed. >> thank you, counsel. the case is submitted. we have more live discussion about journalism and national security with the journalists who received nsa files from edward snowden. in the wheezy and i will republican senator elbert guillory rates the obama administration. after that, michael lomax on the united negro college fund. glenn greenwald, laura poitras, and others appeared at the sources and secrets conference in march. they have not


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